There’s stimuli and then there’s stimuli, as 7IM’s head of Equity Strategy, Investment Management Ben Kumar points out.
China is on holiday – the “Golden Week” of celebrations from October 1st, marking the founding of the People’s Republic.
And the Chinese government certainly knows how to prepare for a national holiday … in the last ten days, they’ve announced around half a trillion dollars of different stimulus measures, aimed at all parts of the economy.
That’s had an unbelievable effect on the Chinese stock markets – Shanghai, Shenzhen and Hong Kong are all up more than 20% in less than two weeks.
More amazingly, on September 30th of the 5,092 companies listed on the mainland, only FOUR fell (… awkward …). The other FIVE THOUSAND AND EIGHTY-EIGHT went up!
But one particular bit of “stimulus” left us wincing, that brokerages were to open 24/7 to accommodate retail traders.*
It’s easy to think that more access to markets leads to more investment. But after a certain point, all it leads to is more trading (and Chinese day traders already represent nearly 90% of the domestic market!).
Because the more often you look at an investment, the less likely you are to see it do well!
We don’t need to go to China to see the evidence – one of our favourite charts makes the point.
The line shows the daily price of the global equity market since 1990 – up by nearly 600% (more than 1200% that if you reinvest dividends!). Great place to be invested.
But the journey to those gains would be different, depending on how frequently you look. That’s what’s in the coloured table.
Watch the market every day, and you’ll see it negative 46% of the time!
Source: Factset/7IM, MSCI World, price return only, past performance is not a guide to the future
Basically, a coin flip.
China might well succeed in getting growth going, but at the expense of creating terrible financial habits for ordinary people; is that a price worth paying?
*Source: https://www.thekobeissiletter.com/
